Consumer Credit Declines an Amazing $68.7 Billion

Mish

A Bloomberg chart shows consumer credit is down month-over-month by the largest amout ever.

The number comes from the Fed's Consumer Credit Report released today.

Consumer Credit April 2020

Concumer Credit April 2020

The above shot is from the credit report. I added the yellow highlights.

The lead chart is from this Tweet.

That is from Bloomberg, but I cannot match it in Fred. This is what Fred depicts.

Change in Total Consumer Credit Owned

Total Consumer Credit Owned april 2020

Using numbers from the Fed Table: 4,202.0 - 4,133.7 = 68.7

Other than the obvious spikes, the charts are the same. I believe the spikes are related to reclassification of student debt and other changes in reporting of Student Loans. 

Change in Total Consumer Revolving Credit 

Change in Revolving Credit April 2020

The change in revolving credit is -58.32 billion. That also matches the Fed report which has it at 1,078.1 - 1,019.8 = 58.3 Billion. 

Total Revolving Credit

Total Revolving Credit  April 2020

The above chart provides a needed perspective on the Fed report which shows revolving credit fell an annualized 64.9%. 

Clearly, consumers have a lot more rebalancing to do. Equally clearly, the Fed wants to prevent just that.

$68.7 billion is an unprecedented decline, but what's coming (or doesn't) is more important.

Mish

Comments (35)
No. 1-15
CzarChasm-Reigns
CzarChasm-Reigns

That "V" recovery "seed money" appears to have gone sideways....

Mish
Mish

Editor

sideways or down?

tokidoki
tokidoki

Consumers are being super smart. The government sends them money and they use it to pay down their debts. They know this Covid thing will be an ongoing thing.

It does mean that future stimulus will have to be something that will force consumers to use it, perhaps a prepaid debit card with an expiry date.

Sechel
Sechel

This didn't just happen. Once the covid-19 crisis hit and the shutdowns started bank after bank announced they were no longer issuing new lines of credit.

BigSKYoung
BigSKYoung

Credit lines tightened, loans are being paid off, credit (M2) is being destroyed.

PecuniaNonOlet
PecuniaNonOlet

I can tell you that as soon as the stay at home orders came out, I cancelled two travel credit cards airline/hotel. Those two cards alone had 30k credit lines and hefty annual fees. I closed the accounts because employer essentially said no more travel in 2020 and maybe none in 2021. I also save $750 in annual fees. Have kept other cards open but never carry debt on them.

Mr. Purple
Mr. Purple

Positive economic news, no matter how false, combined with mass protests equals no more federal payouts to individuals.

Casual_Observer
Casual_Observer

68.7B seems low. I would have expected it to be hundreds of billions.

Herkie
Herkie

Mish, I always said that I do not trust Chinese financial data on any level, they are not using the same accounting procedures (certainly not FASB and even that venerable institution of truth and trust is as corrupt as any other now since mark to make believe has been allowed ever since the GFC) so I take this and any other economic/financial reports and graphs with a grain of salt. Our reporting system is extremely dependent upon periodicity and we are just too close to the sudden cardiac arrest in the economy called Covid to make any useful judgements yet. But, beside that I just no longer trust our reporting any more than the Chinese because of their treatment of inflation and prices. As a retiree on a fixed income I know damned good and well what prices are, I track them closely, yet year in and decade out they under report prices to the point where the emperor has not a stitch on.

I also want to know why my own credit score has dropped 25 points in three months, and most of that since I closed on my house in early April. I just made payment number one, 359 to go, with no forbearance and no late fees, no massive precarious new debt, home ownership used to bump your score up into the realm of serious adult who minds his credit, but that appears to have changed without explanation. I am not laid off, and cannot be in future, my income can't drop in nominal terms.

I think the supercomputer AI's have decided that house prices are going to seriously drop over the next couple years and that is being reflected in credit scoring to limit lender exposure to debt the consumer can't service once things really go organically south after the Covid trigger was pulled, the way sub prime triggered but was not the cause of the GFC. Call it a preemptive downgrade of all credit scores reflecting the wisdom of AI that we all will be less worthy to borrow soon. The one good thing is that it will not impair my ability to do an IRRRL to lower the interest rate on my mortgage come December.

Here by the way is a chart of incomes and how Covid has affected government share of that income, courtesy of the Daily Shot Editor:

Please note that wages (earned income) now make up well under half of all income. Also note that earlier in the week we were treated to a Fed report (or was it BLS?) that claimed a more than 10% jump in incomes. So which is it? There is conflicting data everywhere now so no reason to trust any of it.

And at the current rate any day now the government transfer will equal wages as a source of income. Yet even at that people are struggling at best and massively failing at worst. This puts us on a precipice that we all knew was coming, how it resolves is not really a question anymore since we know TPTB are simply not going to change the current Fed and Federal transfers to Wall Street and the 1%. Yes, they may transfer more to the lower 90%, but our SHARE of transfers will still drop in relation to the wealthy and income inequality will continue to get worse. So much so that the rioting will one day stop being about racial inequality and start being about income inequality, and if you ask me that is already what is at the heart of the troubles, because race is a huge indicator of earning power. In fact the poorer you are the more the police are going to try to contain your anger, and that is why race "APPEARS" to be at the heart of police brutality. Soon enough it will be recognized that it is not really about race but about economic disadvantage and we will 90% of us be in that same foundering desperate boat. Yet they still will not change anything fundmentally, the wealthy own the government and are going to act to protect their portfolio even if it means a world war where we are all just cannon fodder. That has been the go to solution in the past, though who knows, it was just demonstrated that biowarfare (Covid) is like the neutron bomb, kills population while leaving the assets in tact. Now they just need a far more deadly pandemic.

Tony Bennett
Tony Bennett

An observation.

I have very good credit. And it has been months (last year?) since I received a credit card offer. Not as many offers as I got prior to GFC, but until current drought an offer (or two) a month.

Tony Bennett
Tony Bennett

There was an article earlier this year (pre covid) on issuers raising card limits (without recipients asking / approval) ... as issuers found that borrowers typically used 70% of limit ... whatever the limit. I guess that has ended + some limits lowered.

Six000mileyear
Six000mileyear

As long as the decrease in credit comes from sub-prime borrowers having their cards taken away by the banks, then declining credit is a good thing for the economy in general. Credit distorts the true demand as I define as people who want something now and have the cash to pay for it.

Jdog1
Jdog1

My guess would be that after a few months of living off credit cards, waiting for UI many lower income people have bumped up against their credit limits and now are unable to purchase. Many banks have also been reducing credit limits for customers they feel are at higher risk to default.

Carl_R
Carl_R

Consumer credit was down 68.7b in April, following a drop or 11.5b in March. Ever since Covid hit, it's been dropping like a rock. It would have been worse except for a big non-revolving credit jump in February and March.

Even more telling is what happened to revolving credit, i.e. credit cards. Revolving credit dropped 26.2b in March and 58.3b in March. In 2018 revolving credit rose 36.8b, in 2019 it rose 39.6b, and then in Jan/Feb it rose another 5.4b. So, from January 2018 until the end of February 2020 it rose a total of 81.8b, and then in March and April it dropped a combined 84.5b. Thus, revolving credit is now at a level last seen in 2017.

I think it's a combination of two things. First, people are unsure of their future, making them reluctant to spend, and eager to stop paying 7-18% interest. Second, they were locked down, and had no easy way to spend, so they applied all that to pay off credit cards. I expect another drop, but smaller, in May. After that, who knows. In 2008 they continued to pay off debt until 2011, and it was about 2014 before they really let spending get out of hand again.


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